Multinational Investment, Industry Risk and Policy Competition

Jan I. Haaland and Ian Wooton ()

No 3152, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In an uncertain business climate, multinational enterprises must take account of future exit costs in deciding where to locate a branch plant. We study how differences in national labour-market conditions between countries influence this decision. Other things equal, the most attractive location has a flexible labour market (low closure costs) together with a low opportunity cost of employment (high unemployment). In a game between two countries, a nation with an inflexible labour market and high unemployment will succeed in attracting low-risk firms, while that with more flexible labour markets and low unemployment will win the game for higher risk firms.

Keywords: Multinational firms; Investment subsidies; Entry; Exit; Uncertainty (search for similar items in EconPapers)
JEL-codes: D92 F12 F23 (search for similar items in EconPapers)
Date: 2002-01
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Citations: View citations in EconPapers (16)

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